Multinational firms own and transfer technology—which may not be available in the host country—that allows them to be more productive and profitable than firms that are not multinational in nature. Because such a transfer is assumed to contribute to the technical progress of the host economies, it is also assumed to contribute ultimately to their growth.
FDI can in principle generate productivity spillovers through several channels, including imitation (adoption of new production methods), skill acquisition (education/training of workers), competition (efficient use of existing resources by domestic firms), and exports (expansion of export potential of domestic firms).
The recent experience of Central and East European (CEE) transition countries testifies of FDI being the main vector of innovation diffusion in these economies. The present paper analyzes the contribution of FDI to the growth of CEE transition economies, with special reference to Romania.
We model the evolutions of FDI and GDP in Romania, in the period 1998-2008, by using the autoregressive Markov-switching model.
The relationship between the above variables is examined by using the Gretl and Matlab software.
We also examine the existence of a causality relationship between these two variables, by using a Granger causality test.